Therefore, whether the ceiling rate at which countries have committed at the WTO is sufficient to diminish trade policy volatility is an empirical question.
Using a recently built database on applied tariffs covering over 100 countries for the period 1996 to 2009, we find evidence that countries do vary tariffs. Most importantly, we find evidence that applied tariffs of tariff lines that are bound are more likely to be decreased and less likely to be increased, and that this “taming” effect of the binding decreases with the level of the water (i.e. the gap between bound and applied tariff). This finding is robust to controlling for political economy determinants of tariffs and to factors related to the economic cycle.
No: ERSD-2011-13
Authors:
Marc Bacchetta and Roberta Piermartini — WTO
Manuscript date:
September 2011
Key Words:
water in the tariff, weak commitments, tariff volatility, trade policy uncertainty, World Trade Organization, trade agreements.
JEL classification numbers:
F1
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